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Dow’s 9-Week Rally in Jeopardy as Trump Trade Deal Hangs in Balance

Last Updated October 5, 2020 2:10 PM
Sam Bourgi
Last Updated October 5, 2020 2:10 PM

The Dow and wider U.S. stock market rose Friday but were well off session highs as investors turned their attention to the resumption of trade negotiations with China.

Dow Winning Streak on the Brink

All of Wall Street’s major indexes opened higher, reflecting a strong pre-market session for U.S. stock futures. However, most of the gains had fizzled by midday, with the Dow at risk of snapping a nine-week winning streak.

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The Dow dropped sharply after bouncing at the opening bell. | Source: Yahoo Finance

The Dow Jones Industrial Average climbed 52 points, or 0.2%, to 25,968.93. It was up by as much as 127 points earlier in the morning. Shares of Walgreens Boots Alliance Inc. (WBA) plunged more than 5% after the company reported  reimbursement headwinds and deflationary pressures on some of its products. DowDuPont (DWDP) also declined by 1%.

The broad S&P 500 Index gained 0.35% to 2,794.88. It was up by as much as 0.9% earlier in the day.

Gains were concentrated in just five of 11 primary sectors, with energy leading the rally. Health stocks were up across the board and financials also reported higher than average growth.

Meanwhile, the technology-focused Nasdaq Composite Index climbed 0.55% to 7,573.82.

A measure of implied volatility known as the CBOE VIX touched a session low of 14.06. That would have marked the lowest settlement in over a week. The so-called “fear index” was last spotted at 14.43, down 2.4% from the previous close.

The stock market’s new-year rally has faced strong headwinds this week as geopolitical tensions dampened investors’ appetite. The major indexes are also facing strong technical resistance, with the S&P 500 unable to break 2,800 and the Dow struggling to overcome the 26,000 level.

China Trade War Takes a Bite Out of U.S. Economy

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The U.S.-China trade war has already hit home, according to a new study. | Source: Shutterstock.

President Trump’s tariff war on China has cost the U.S. economy $40 billion in lost exports, according to a new study  from the Institute of International Finance. The figure was derived by analyzing the U.S. export slump between July and November of last year. Over that span, the value of lost exports exceeded $17 billion. That translates into an annualized loss of about $40 billion.

The Trump administration is looking to repair a broken trading relationship with the world’s second-largest economy that seeks to put an end to currency manipulation, intellectual property theft, and unfair subsidies for domestic firms. Trade delegates from the U.S. and China are set to resume their negotiations this month after making tangible progress on a number of contentious issues last week.

In the meantime, the U.S. economy is showing signs of slowing following a torrid start to 2018. Gross domestic product (GDP), the value of all goods and services produced in the economy, expanded at an annualized rate of 2.6% in the fourth quarter. That was well above the consensus forecast but much slower than the third-quarter rate of 3.4%.